Small Business Retirement Plans in Kansas City, MO

Small Business Retirement Plans in Kansas City, MO. Establishing a retirement plan for you and your Kansas City, MO employees is a great way to retain talent, boost performance, and get those much-desired tax reductions. While the benefits may be obvious, the difficulties of opening and maintaining small business retirement plans are not. What benefits do different kinds of plans provide? What federal regulations do I have to follow? What do I do when I want to change plans, or if I'm retiring and my business will no longer be running? Correct Capital's team of Kansas City, MO financial planners is dedicated to helping business owners and their employees reap the rewards of their retirement plans and navigate the specifics of federal regulations. Whether you already have a plan and want insight as to how it's performing or need to set up a plan, call Correct Capital today at 314-930-401K or contact us online.

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Correct Capital Wealth Management's office is physically located in St. Louis, MO, but we serve clients throughout the United States in both personal financial planning and corporate retirement plans.

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What Types of Retirement Plans Are Available to Small Businesses in Kansas City, MO?

Retirement plans and accounts are offered to small business owners and their employees by the federal government and various financial custodians in anticipation of retirement. These include:

SEP-IRA

This form of individual retirement account is available to owner-only businesses, freelancers, and businesses with very few employees. It follows the identical rules as a traditional IRA, where the money put into the account grows tax-deferred. Employers can deduct contributions they make on behalf of their employees. Only employers make payments, which are modifiable and can vary year-to-year. Additionally, the contributions are tax-deductible.

Benefits of a SEP-IRA

• High Contribution Limits: For 2024, employers are allowed to contribute up to 25% of each employee’s compensation, with a cap of $69,000.
• Flexibility: For businesses with changing profits, this plan is suitable as employers are not obligated to contribute annually.
• Simple Administration: This plan requires minimal paperwork and has no annual filing requirements with the IRS beyond regular tax filings.

Setting Up a SEP-IRA

• Select a Financial Institution: Selecting a financial institution involves choosing an institution like a bank, brokerage firm, or credit union. Another option is a virtual financial institution.
• Execute a Written Agreement: Create a written agreement and advise eligible employees.
• Make Contributions: To make contributions, calculate a set percentage of each employee’s compensation or deposit funds based on a percentage range.
• Maintain Records: Keep complete records of all contributions made to employee accounts, including time stamps and sums. Additionally, ensure records are organized and easily accessible for inspection purposes.

SIMPLE IRA

"SIMPLE" stands for "Savings Investment Match Plan for Employees," and these IRAs are for businesses with a maximum of 100 employees. Employees can make contributions to their own accounts through salary deferrals, and employers can also make contributions. This plan is inexpensive as it's mainly funded by employees, and their contributions can be tax deductible.

Benefits of a SIMPLE IRA

• Ease of Setup and Administration: SIMPLE IRAs are easy to establish and maintain, with no need for yearly filings for employers. This makes them perfect for small businesses with limited administrative resources.
• Employer Contributions: Employers are required to make contributions, by either matching employee contributions up to 3% of their salary or making a non-elective contribution of 2% of each eligible employee’s salary.
• Employee Contributions: Employees can contribute up to $16,000 in 2024, with an additional catch-up contribution of $3,500 for those aged 50 and older.
• Immediate Vesting: All contributions to the SIMPLE IRA are immediately 100% vested, meaning employees have full ownership of all funds in their accounts as soon as contributions are made.

Setting Up a SIMPLE IRA

• Select a Financial Institution: Choose a financial institution, mutual fund, or investment brokerage to hold the SIMPLE IRA assets.
• Execute a Written Agreement: Use IRS Form 5304-SIMPLE or 5305-SIMPLE to create a written agreement outlining the terms of the plan.
• Employee Notification: Notify eligible employees about the plan, including information on how to participate and the benefits provided.
• Employee Enrollment: Assist employees in establishing their accounts and making their contributions.
• Employer Contributions: Decide whether to match up employee contributions or make non-elective contributions, and ensure these are made promptly.

Personal Defined Benefit Plan

This plan is exclusively for owner-only businesses, or those with a maximum of 5 employees. With this plan, you target a desired level of retirement income, and contribution limits are adjusted each year based on that, with a maximum limit set each year. While this plan is highly customizable and allows for significant contributions, there may be beginning expenditures and recurring costs associated with it.

Benefits of a Personal Defined Benefit Plan

• High Contribution Limits: Allows for significantly higher contributions compared to other retirement plans, potentially reaching $$275k annually (in the current year) depending on age, income, and the desired retirement benefit.
• Predictable Retirement Benefits: The plan promises a specific benefit at retirement, providing more predictability for retirement planning compared to defined contribution plans like 401k accounts.
• Tax Advantages: Contributions are tax-deductible, reducing current taxable income. The investments grow tax-deferred until distribution.

Setting Up a Personal Defined Benefit Plan

• Consult with a Plan Provider: Work with an investment firm or retirement plan provider that specializes in defined benefit plans to establish the plan.
• Create a Plan Document: Draft a written plan that details the terms of the plan, including contribution requirements and how benefits are calculated.
• Actuarial Calculations: Have an actuary calculate the necessary contributions to meet the promised benefits, per IRS requirements.
• Annual Administration: To manage the plan’s investments, ensure that required contributions are made annually and conduct annual actuarial reviews to adjust for any changes in funding requirements.
• Compliance and Reporting: Ensure compliance by filing IRS Form 5500 annually to report on the plan’s status.
• Permanence: To ensure compliance, a defined benefit plan must be in place for at least five years. Plans that are quickly terminated can be signals and subject to regulatory scrutiny.

401(k) Plans

401(k)s are available to private companies of any size, and are highly tailorable. Employees may postpone their salary as contributions, and employers can make annual contributions. Most 401(k) plans come with significant tax planning advantages for both businesses and employees. They can include:

• Traditional 401(k)s
• Safe Harbor 401(k)s
• Automatic enrollment 401(k)s

Benefits of a 401(k) Plan

• Tax Advantages: Contributions are made before taxes, reducing the employee’s taxable income. Alternatively, contributions can be made post-tax (Roth). Investments grow without immediate tax.
• Employer Matching: Many employers offer match programs, which can significantly boost an employee's retirement savings.
• Higher Contribution Limits: For this year, employees can contribute up to $twenty-three thousand dollars, with an additional $seven thousand five hundred dollars catch-up contribution for those aged 50 and older.
• Loan Options: Participants can often take loans against their 401(k) balance, providing flexibility in case of urgent financial needs.

Setting Up a 401(k) Plan

• Choose a Plan Provider: Select a provider that offers various investment options, administrative services, and employee learning resources.
• Create a Plan Document: Prepare the terms of the plan, including eligibility, contributions, and how funds are vested.
• Set Up a Trust: Ensure plan assets are held in trust to safeguard them for participants.
• Develop a Recordkeeping System: Maintain precise records of contributions, earnings, and distributions.
• Distribute Plan Information: Employers sponsoring a 401(k) must distribute plan information and updates in a timely manner.

Individual 401(k)

Also known as a i401(k), this plan is designed to offer the same benefits as a traditional 401(k), but for individuals who are self-employed, or whose only employee is their spouse. Each year, you can contribute up to the annual 401(k) limit, and the employer may make a nonelective contribution up to 25% of compensation or, if self-employed, an amount considering your earned income and deducting half of self-employment tax paid and contributions made by you during the year. Another advantage of individual 401(k)s is that you can opt to open a Roth 401(k) account, or roll over pre-tax assets.

Setting Up an Individual 401(k)

• Choose a Plan Provider: Pick a financial institution or brokerage that offers Individual 401(k) plans. Search for providers with various investment options and reduced fees.
• Create a Plan Document: Draft the terms of your plan, including contribution limits, investment options, and loan provisions.
• Open an Account: Set up your Individual 401(k) account with the chosen provider. This typically involves filling out an application and providing necessary documentation.
• Make Contributions: Set your contribution amounts for the year and make regular contributions. Ensure you stay within the IRS limits for total contributions.
• Compliance and Reporting: If your plan assets exceed $$250k, you must file IRS Form 5500 annually. Ensure detailed records of all contributions and transactions.

Profit Sharing Plans

A Profit Sharing Plan is a type of retirement plan where employers can make voluntary contributions to employee retirement accounts, determined by the company's profits. These plans are intended to share the company’s success with its employees and incentivize them to contribute to the company’s profitability.

Benefits of a Profit Sharing Plan

• Flexibility in Contributions: Employers can choose each year how much to contribute based on the company's profitability. This makes it an adaptable option for businesses with fluctuating earnings.
• Tax Advantages: Contributions are tax-deductible for the business, reducing taxable income. Additionally, the funds grow tax-free until withdrawal, which can benefit employees' long-term savings.
• Employee Motivation and Retention: Linking contributions to company profits can boost employee morale and loyalty, as employees directly benefit from the company’s success.
• High Contribution Limits: Employers can contribute up to the lesser of one-fourth of an employee’s compensation or $66,000 for this year, making it a advantageous option for employee benefits.

Setting Up a Profit Sharing Plan

• Choose a Plan Provider: Pick a bank or retirement plan provider to administer the plan.
• Create a Plan Document: Develop a plan document outlining the profit-sharing formula, eligibility requirements, and vesting schedule.
• Communicate with Employees: Notify employees about the plan, how it works, and the benefits they can expect.
• Determine Contributions: Annually decide the amount to contribute based on company profits and the predetermined formula.
• File Necessary Forms: File IRS Form 5500 annually to report the plan’s status and compliance.

Employee Stock Ownership Plan (ESOPs)

An Employee Stock Ownership Plan (ESOP) is a retirement plan that invests primarily in the employer's stock. ESOPs give employees ownership interest in the company, aligning their interests with the business's success, and potentially helping set up the business's next generation of leadership.

An Employee Stock Ownership Plan (ESOP) is a retirement plan that primarily invests in the employer's stock. ESOPs grant employees a stake in the company, aligning their interests with the business's success, and potentially helping establish the business's next generation of leadership.

Benefits of an ESOP

• Employee Ownership: ESOPs grant employees with an ownership stake in the company, which can enhance incentive and dedication.
• Tax Benefits for the Company: Contributions to the ESOP are tax-deductible, and the company can also gain tax benefits associated with the sale of stock to the ESOP.
• Retirement Savings for Employees: Employees benefit from the growth in the value of the company’s stock, granting potentially considerable retirement savings.
• Succession Planning: ESOPs can be an effective strategy for business succession, allowing owners to sell their shares to high-performing employees, who can gradually take the lead as previous owners transition into retirement.

Setting Up an ESOP

• Feasibility Study: Carry out a feasibility study to determine if an ESOP is a feasible option for your company.
• Hire ESOP Advisors: Engage financial, legal, and ESOP advisors to assist with the setup process.
• Create a Plan Document: Develop a plan document that specifies the terms of the ESOP, including how shares will be assigned and vested.
• Establish a Trust: Form an ESOP trust to hold the company stock on behalf of employees.
• Communicate with Employees: Update employees about the ESOP, how it works, and the benefits they can expect.
• Compliance and Reporting: File necessary documents with the IRS and the Department of Labor, including Form 5500, to keep your plan compliant.

Multiple Employer Plans (MEPs)

A Multiple Employer Plan (MEP) is a type of retirement plan that allows multiple, unrelated employers to participate in a single retirement plan and achieve economies of scale. MEPs are designed to provide small businesses with a economical and administratively efficient way to offer retirement benefits to their employees.

Benefits of an MEP

• Cost Savings: By combining resources with other employers, businesses can decrease administrative costs and fees associated with maintaining a retirement plan. This cost-sharing makes MEPs an appealing option for small businesses looking to save on expenses.
• Administrative Efficiency: MEPs streamline the management of retirement plans by consolidating administrative tasks. This includes plan setup, compliance, reporting, and participant communication, which are handled by the MEP sponsor or administrator.
• Improved Access to Benefits: Small companies lacking resources to offer a retirement plan on their own can provide competitive retirement benefits through an MEP., which can help to attract and retain talented employees and provide the business access to a competitive advantage they wouldn't be able to have on their own.
• Fiduciary Relief: The MEP sponsor typically assumes most of the fiduciary responsibilities, reducing the liability and administrative burden on individual employers.

Setting Up an MEP

• Join an Existing MEP or Form a New One: Small businesses can either join an existing MEP or collaborate with other businesses to form a new one. This step involves selecting a MEP sponsor who will manage the plan.
• Select a Plan Provider: The MEP sponsor will work with an investment firm or retirement plan provider to administer the plan.
• Adopt the Plan: Each participating employer must formally adopt the MEP by completing an adoption agreement and providing necessary employee information.
• Employee Enrollment: Inform the plan details to employees and facilitate their enrollment in the MEP.
• Ongoing Administration: The MEP sponsor handles the majority of the administrative tasks, including compliance with IRS and Department of Labor requirements, submitting required documents, and managing plan assets.

There are pros and cons to each plan, and which may be "best" for you will depend on your business and your and your employees' needs. Different plans and accounts have different tax benefits, fees, required minimum distributions, contribution limits, and more. A trusted financial advisor like those at Correct Capital will be able to help you determine which plan works best for you and your team.

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Benefits of Setting Up a Small Business Retirement Plan in Kansas City, MO

The particular, financial-based advantages to your Kansas City, MO small business retirement plan is dependent upon which plan you set up. That said, there are many general benefits of setting up a small business retirement plan for both businesses and workers. 60% of employees say that a retirement plan is a "very important" factor in job satisfaction, while employers also get tax breaks and can better attract and motivate employees. Below are some of the main benefits for both businesses and employees of having a small business retirement plan:

Do I Need a Financial Advisor in Kansas City, MO to Help With My Small Business Retirement Plan?

Opening small business retirement plans is complicated. While the federal government does not currently require any company to offer retirement savings options to employees, some states require employers with a certain number of employees to have a retirement plan. Kansas City, MO retirement consultants that are experienced in helping business owners create retirement plans are usually needed to not only make sure you get the benefits you're looking for, but that you abide by evolving tax and business laws.

As your Kansas City, MO retirement plan consultants for your small business, our team will:

• Help you choose which plan works best for you and your employees, and the right custodian to hold plan assets
• Assist you in setting up your plan, including creating a document that complies with IRS code, arranging a trust for plan assets, helping employees understand how specific of the plan apply to their savings, and developing a record keeping system
• Help you operate your plan by staying compliant with relevant laws, managing the plan's assets, and distributing benefits
• Help educate your employees on your plan, its benefits, and how it can serve as a part of their continued financial success

Correct Capital's Kansas City, MO advisors hold ourselves to the fiduciary standard, meaning we are obligated, by law and by ethics to only work in your best interest. We work for you, and not our own firm. Schedule a consultation with a member of our advisor team today.

Common Challenges and Solutions in Small Business Retirement Plans

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Challenge 1: High Setup and Administrative Costs

Many small businesses hesitate to set up retirement plans due to the assumed high costs.

Solution:

• SIMPLE IRA and SEP IRA: These plans have lower setup and administrative costs compared to traditional 401(k) plans.
• Tax Credits: The SECURE Act 2.0 offers tax credits for small businesses to offset the costs of setting up retirement plans. Businesses can receive a credit of up to $5,000 annually for three years to cover startup costs, with an additional credit for automatic enrollment plans.

Challenge 2: Administrative Complexity

The challenges of maintaining a retirement plan can be daunting for small business owners.

Solution:

• Outsource Administration: Many plan providers offer administrative services that can handle the majority of the paperwork, compliance, and record-keeping tasks. Providers offer comprehensive administrative support, including integration with payroll and fiduciary services.
• Multiple Employer Plans (MEPs): Joining an MEP can significantly reduce the administrative burden as the MEP sponsor handles most of the administrative duties, including compliance and reporting.

Challenge 3: Employee Participation and Engagement

Limited employee involvement can limit the effectiveness of a retirement plan.

Solution:

• Automatic Enrollment: Implementing automatic enrollment can significantly increase participation rates. Employees are automatically enrolled at a default contribution rate but can opt out if they choose. This approach has been shown to raise participation and savings rates.
• Employee Education: Providing regular education and communication about the benefits of the retirement plan can help increase employee engagement. Host workshops, seminars, and one-on-one meetings to ensure employees understand how the plan works and the importance of saving for retirement. Correct Capital offers employee education, including one-on-one meetings and quarterly webinars, if you choose us as your retirement plan advisors.

Challenge 4: Compliance with Regulations

Managing the complex regulatory landscape can be challenging, especially for business owners who need to keep their attention on their core business.

Solution:

• Professional Guidance: Hiring a financial advisor or consultant who specializes in retirement plans can help ensure compliance with ERISA, IRS, and Department of Labor regulations. We can assist with plan setup, annual filings, and ongoing management.
• Use of Technology: Many retirement plan providers offer online platforms that help manage compliance by automating reporting, tracking contributions, and ensuring that all regulatory requirements are met.

Challenge 5: Flexibility and Adaptability

Business owners need plans that can adjust to changing business conditions.

Solution:

• Flexible Plans: Opt for retirement plans that offer flexibility in contributions. SEP IRAs, for example, allow employers to decide each year how much to contribute based on the company’s profitability, making it a suitable option for businesses with variable income.
• Regular Plan Reviews: Conduct regular reviews of your retirement plan to ensure it continues to meet the needs of your business and employees. Modify the plan as necessary to align with changes in your business environment and workforce demographics.

With the assistance of dedicated Kansas City, MO financial advisors and retirement plan specialists, your business can manage these challenges to create a small business retirement plan that works for both you and your employees.

Other services we offer in Kansas City, MO include:

• 401(k) Audit
• High-Net-Worth Wealth Management
• Retirement Planner
• Financial Planning
• Retirement Plan Consultants
• Fiduciary Financial Advisor
• Self-Employed Retirement Plans

Small Business Retirement Plans in Kansas City, MO | Correct Capital

Owning a small business comes with countless moving parts and tasks to ensure things run smoothly — setting up and maintaining a small business retirement plan shouldn't be one of them. Correct Capital currently manages over 37 plans in both small and large companies, and represents over $212 million in total plan assets* across the United States. To set up a retirement plan for your small business, or learn what other services we offer to business owners, speak to a financial advisor at Correct Capital today at 314-930-401K or contact us through our website.

*as of March 2024